The Financial Burdens of Property Taxes: Evidence from Philadelphia

Property taxes are an essential source of revenue for U.S. local governments, generating more than $547 billion in 2018. While local elected officials use these taxes to fund public goods and services, their constituents find them burdensome. Homeowners, especially those with constant incomes, may be sensitive to large increases in their property tax bills. In fact, some may not be able to afford the increases. My research measured homeowner sensitivity to property tax rise based on examining a recent reform in Philadelphia that generated changes in property taxes without changing the provision of public goods and services.

I found that a $100 increase in property taxes results in a rise in property tax delinquency by 3.9 percent after one year and 7.7 percent after two years. Home sales also surge by some 4.1 percent after two years with no effect on house prices. Further, I find that the financial burdens of property taxes vary considerably by race and occupancy status. White owners are more likely to recover from delinquency and sell their homes than Black and minority owners. Owners who live in their houses are also more likely to sell than landlords.

Ellen Fu received her PhD in Applied Economics from The Wharton School. She will be joining Cornerstone Research in San Francisco this fall.